"It's obviously a huge blow for the team and everyone involved, but they are a fantastic team and they will bounce back," Paul Bassat, one of Australia's most respected tech industry figures, who founded $7 billion internet company Seek, says.

Its financial backers include News Corp scion Lachlan Murdoch and Catch of the Day founders Hezi and Gabby Leibovich.

Murdoch's Illyria vehicle had a $5 million stake in Unlockd, according to Australian Securities and Investments Commission statements from March. Former Telstra CEO Sol Trujillo held a $1.5 million stake. The biggest shareholder is Malaysian telco Axiata, with $14.5 million.

Advertisement

Start-ups do fail

It's tempting to view Unlockd's travails through the prism of a much bigger story: Google and Facebook's stranglehold over digital advertising markets - a legitimately concerning situation that Australia's competition regulator is investigating.

That is certainly the line the Australian start-up has pushed in recent months. Yet sources in the advertising industry and in tech circles paint a more nuanced picture.

One of the things that often gets lost amid coverage of technology start-ups in sections of the Australian media is that most of them actually don’t 'make it', in the sense of reaching an IPO or trade sale. Let alone go on to become substantial and sustainable businesses.

Somewhere between two thirds and 90 per cent of start-ups fail, depending on whose numbers and which definitions you use. Often, how much money they've raised, or who they raised it from, becomes moot.

"The reality of more and more talented teams in Australia starting companies with bold visions is that we are going to have a lot more big successes," says Bassat, who now runs venture firm Square Peg Capital, "but we are also going to have more companies that don’t realise their ambitions".

Loading

Unlockd operates a mobile app allowing consumers to, among other things, get discounts on their telecommunications services by watching advertisements when they unlock their phone screen. It claims 300,000 active users globally, and 500 monthly advertisers.

The app is only available in Google's Play Store (the company never launched a version for Apple's iOS). But earlier this year, Google attempted to kick it out, citing a breach of its terms and conditions.

Google's move forced Unlockd to dramatically cancel plans for an IPO, and prompted it to launch legal action against the search giant in the UK High Court. Unlockd cited "anti-competitive conduct on the part of Google towards a company which "might pose a future threat to their dominance".

Google is thought to have first raised concerns with Unlockd in January. In its own statement, Google said it had pointed out to Unlockd that it was in breach, explained how it could resolve that, and gave the company time to do so. It says Unlockd (which is still in the Play Store after a court injunction) remains in breach.

Seek co-founder Paul Bassat

Photo: Fairfax Media

According to the Google Play store's terms and conditions, publishers aren't allowed to use deceptive methods to obtain clicks from users, including offering them compensation for viewing content. They also aren't allowed to "overwhelm" users with full screen pop up ads.

For its part, Unlockd says Google had previously approved its app - twice - following exhaustive testing, and that it had not made any changes that justified being kicked out.

Regardless, Unlockd raised $80 million from prominent investors over the past two years - a significant amount of capital for an Australian tech start-up.

Notably, the company didn't count any of Australia's top VC funds - Square Peg, AirTree Ventures or Blackbird Ventures -among its shareholders, despite pitching them for investment.

However, the company did raise debt from venture fund Partners for Growth, which has backed other prominent start-ups including Prospa and Koala Mattresses.

Australian Association of National Advertisers chief executive John Broome describes the business model as “innovative” and a “great way to be first cab off the rank” with a unique proposition.

However, one of the primary concerns for big brands in the current climate is “market penetration”, he says, which requires millions of customers.

Broome says there haven’t been any major concerns voiced to him by members of the AANA as a result of Unlockd going into administration, adding that it’s likely the platform was used as a “complement” to more mainstream advertising.

The notion that a company with 330,000 global users could be viewed as a threat to a juggernaut like Google has raised eyebrows in tech industry circles, especially since Unlockd's business was so heavily reliant on Google.

“For your business model to succeed when you are dependent on a dominant player in the market can be difficult,” Broome says.

Other advertising industry sources say Unlockd may have been facing issues gaining traction in the Australian ad market. The company declined to specify how many of its users are Australian.

Its comparatively small size and unusual model could make it a tough sell for large advertisers who typically want to buy programmatically and at scale, these sources say.

Since late last year, Unlockd has been in a partnership with Multi Channel Network to help spearhead some of its advertising.

Future uncertain

Unlockd's future is now unclear. Administrators McGrathNicol says their immediate focus is to "stabilise Unlockd’s operations while undertaking an urgent review" of its finances. They will then explore a sale or recapitalisation that could recover money for its backers.

The international operations of Unlockd are not currently subject to the Voluntary Administration appointment, it says.

While it seems the courts will decide who is to blame, the episode has once again put Google's conduct in focus.

The ACCC signalled Unlockd's predicament could be considered in its ongoing review of digital platforms. And if there was abuse, it could take action.

"We are already looking at commercial dealings between digital platforms and advertisers to determine whether the platforms are exercising market power," a spokesperson said.

Whatever happens from here, it seems the rise and fall of Unlockd will continue to be debated.

"It's really important that we don’t view episodes like these as failures," says Bassat. "Because the history of the tech industry in other parts of the world is that teams that have either enjoyed modest success or not realised their goals, have gone on and done amazing things with their next ventures."

John McDuling writes about business, technology and the economy. Previously he was a reporter for Quartz in New York, covered telecommunications and markets for the Financial Review, and worked in the finance industry.